Taming Problem Properties, Portfolios and their Frustrated Owners

problem-properties

Problem properties are the bane of every property manager, who frequently must also bear the owner’s frustration and, although often misplaced, wrath. What is a property manager to do? As a property manager of 20 years, I’ve come to realize that knowing specific neighborhood attributes (and how they impact rental ROI) is more important now than ever before in assessing and managing problem properties.

In the Kansas City market, as in most, demographic diversification justifies the need to learn and appreciate the differences in the neighborhood makeup and economic factors that drive outcomes for investment rental property. Neighborhood demographics have proven to be critical indicators of how rental investment property will perform, and the quality of the tenants that will be attracted to that neighborhood.

Problem Properties: The Root Cause

I have spent years examining the differences in the results of similar properties, managed by the same management personnel, policies, screening criteria, collection efforts, resulting in different investment outcomes. As my quest to understand these divergent outcomes continued, I learned that demographic data points of a neighborhood could provide insight and predictable indicators of certain events that diminished or improved the outcome of the rental property results.

As most experienced property managers realize, when an investor presents one or more problem properties in a challenging neighborhood to the management firm, attempting to quantify that challenge is very difficult – often nearly impossible – to explain (or rationalize) it to the investor. When a property manager manages a property in a difficult area, results are commonly less than ideal, negatively reflecting upon the manager’s performance and commonly challenged by the investor, resulting in a challenging, rather than cooperative, relationship. Attempting to explain a property’s results without quantifiable information depicting negative location influences often forces managers to defend circumstances outside their control.

RentFax RISC™ Score: Providing Value (and Sanity) to Property Managers

The Rental Income Stability Composite (RISC™) Score developed by RentFax provides property managers a powerful tool that offers value in several ways. First, it can be used for determining the viability of accepting a new property (or portfolio of properties), to avoid problem properties and insure it/they fit the company’s management style and business goals. Managers may also use the RISC Score to establish and assess different management fees, and implement different operational strategies, and select tactics to bring in the best possible results.

In ongoing client relationships, the RISC Report provides quantifiable data to support recommendations of the manager’s efforts and the importance of the investor recognizing the risks of the property address. Managers can use the RISC Score to determine security practices for vacant properties and to determine showing policies for the safety of leasing agents and construction personnel of properties that exhibit higher risk influences as enumerated by the RISC Score.

RentFax RISC Score: Tool for Portfolio Balancing

In addition to all of the things mentioned above, one of the most valuable uses of the RISC Score is to evaluate and manage the overall business by scoring the manager’s property portfolio, and then seeking to correlate score of the property with the profitability of the account. Many have found that problem properties, i.e. those with high-risk influences, requires higher management effort, which equates to higher financial management overhead and lower profitability. Many managers have found that properties that require extra ordinary effort, are better to be resigned than to be managed at a loss.

Armed with the RISC report, property managers can help direct current their clients to sell those problem properties that are higher risk and under performing. They can then use the same criteria to help vet new properties, adding value to the manager’s service offering. Combining powerful qualitative data with local experience and local knowledge positions the manager far better and truly makes the local manager more valuable to current and potential clients. Consultative services can increase client satisfaction and property selection. This can also improve overall operational profitability by steering the business growth toward properties requiring optimum effort, delivering and enhanced results and by assisting clients to better success and repeat business.

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